We are not the only ones

Oct 4th 2007
From The Economist print edition
Prospecting for riches in the tax code

THE discovery of rich seams of metal in remote places used to bring prospectors rushing in the hope of making their fortunes. Now a different sort of scramble is under way, as governments around the world try to lay their hands on a bigger share of the proceeds of mining. Metals prices have soared in recent years, thanks mainly to growing demand from China and other booming economies. That has lifted mining firms' profitsand drawn the attention of finance ministers.
Reuters He wants more buck for his bang

Several African countries, for example, are rewriting the rules for mining firms. The latest victim is AngloGold Ashanti, a South African gold-mining concern, which has agreed to an overhaul of the taxes it pays in Tanzania to speed the flow of cash from its mines to the government's coffers. Canada's Barrick Gold and Australia's Resolute have agreed to similar arrangements in Tanzania, while Guinea also wants to amend a previous deal with AngloGold.

Zambia, meanwhile, plans to cash in on the stratospheric price of copper by renegotiating the generous terms it gave to foreign firms when it privatised its copper mines in 2000. Then the price was low. Although these investors rescued an industry close to collapse, Zambia now wants to increase royalties and other taxes. Congo said in April that it was reviewing all mining contracts. And Indonesia wants America's Freeport McMoran to pay higher royalties at its huge Grasberg mine.

Latin America is an exemplar for the newly assertive nations. In 2004 the governments of Chile and Peru imposed new royalties. Last year Peru convinced mining firms to spend some $780m on social programmes over five years. Now Bolivia is contemplating nationalising some mines and Ecuador is threatening to review concessions. And other troubles lurk for big mining companies in the region. Workers, keen to redivide the spoils, are threatening strikes in Peru and last year disrupted production at Chile's vast Escondida mine, owned by Australia's BHP Billiton, for 25 days before securing a lavish pay rise.

Governments intent on reworking contracts or imposing new taxes clearly feel that they have the upper hand at the moment. When prices were depressed and profits scarce foreign firms had to be lured with generous terms that now rankle. But strong growth in Asia should keep metals prices high for years, while a shortage of engineers and equipment is hampering investment in new mines. So mining firms are likely to swallow their pride and agree to any deals that allow them to continue to rake in profits.

But to invest in mines with decades-long lifespans, mining firms want enduring tax and regulatory regimes. As metals prices rise and fall, they argue, they will sometimes seem to be doing best out of any given regime, while at other times, governments will benefit mostit's the luck of the draw. They also claim that countries that acquire a reputation for moving the goalposts may find that when times are tougher investors will think twice before agreeing to new dealsalthough if that were really true, they would have left many of the countries concerned long ago.